Subscribe to SearchCap

Google’s New Forced Transparency: Is Your Agency Ready?

Many advertising agencies are not transparent in their reports to clients. But does that matter? If they are generating leads and conversions for their advertisers, why should it matter where dollars are being spent?

Consider this typical conversation between a salesperson who works for an aggregator and a business who is using them as an agency to manage their paid search advertising campaigns:

Advertiser: “Do I get to see my keywords?”

Agency: “Leave the keyword management to us; you don’t need to waste your time with keywords.”

“My friend told me click through rate matters. Will I see that?”

“You don’t need to get bogged down with statistics, that’s our job.”

“I read an article about click fraud on these sites that show Google ads. How do I protect myself?”

“The content network, click fraud, CTR, and even where you money is spent doesn’t matter to your business.”

“What? Why not?”

“How do you make money?”

“You should know this by now. I’m an accountant. I help people manage money and do their taxes.”

“How do you get these clients?”

“People call me.”

“So shouldn’t we just talk about how many phone calls you’re going to get?”

“OK. How many phone calls will I get?”

“You can see your contact form fills, driving directions, page prints, and most importantly, phone calls inside your dashboard. We’re your expert marketing team—trust us to do the hard work of choosing keywords and managing your spend. You can login at any time and see how many calls you received, the time they were placed, and their duration. You can rate each call so we know which calls were good and bad calls. You should judge us based upon how much business we bring you—phone calls—as that’s the true currency to help you grow your business.”

Google has decided the level of transparency (or rather, lack thereof) in our hypothetical conversation above will no longer be acceptable. Google recently announced that everyone who spends money with AdWords should know at a minimum:

Clicks

Impressions

Spend

While the new policy is being sold by Google in the name of improving transparency, I believe there is another element at work: branding and assuring customer loyalty—to Google.

I spent a few years helping grow a company from a fledging agency into one that managed tens of thousands of PPC accounts. From this experience, I know many of the ins-and-outs of aggregators, and while I cannot disclose all that went on, I can give an opinion about why Google is making this change based upon my years of experience in this field (and note that even though I’m discussing Google’s policy changes, the reasons I’m postulating for the changes are my opinion only).

I was on Google’s campus five years ago and was asked a simple question by a Googler that I’ve never forgotten: “With such a low barrier to entry and exit, how do we keep advertisers?”

It takes five minutes to open an AdWords account. It takes less than one minute to close the account.

Good question. I’m still waiting for the perfect answer.

Who gets credit for phone calls?

When you consider that hundreds of thousands of AdWords accounts are managed by a third party—not the advertiser spending the money—how does Google ensure it is properly receiving credit for traffic and phone calls generated through AdWords campaigns?

It started with the API terms of service years ago. To use the API, you must agree to certain terms that go beyond the typical AdWords contract. One of the API terms that has since been amended, was that Google data could only be displayed on a page by itself. You could not show a page that had both Yahoo and Google data on it (or Google and any other advertising program such as adCenter, Ask.com, etc). Google changed this clause to allow other metrics on the page; however, the Google data must be called out specifically and cannot be combined with any other data.

However, if you were an aggregator creating reports for your clients, you did not have to show any Google data at all. You could decide to not display spend, impressions or clicks and only show the most clicked-on keywords without any other metrics.

Many customers would receive a report that showed:

Top 10-25 keywords

(sometimes) Total clicks

(sometimes) Conversion activity

This report was for their entire budget across all properties, even if some of that budget was used on AdCenter, Yahoo or other search engines. Customers had no idea where their money was being spent, or where those clicks were coming from.

In cases like this, Google did not receive any credit for the dollars being spent. The credit for the clicks and phone calls went to the advertising agency.

Mythbusting the belief that Google advertising does not work

Aggregators work on low margins and high volume. They are not managing twenty accounts that spend a million dollars each. They are managing tens of thousands of accounts that in aggregate spend millions each month. The margins aggregators earn are often highly guarded figures.

Some aggregators have taken 50% of the ad spend for themselves, and some are rumored to have taken even more.

So an advertiser knows how much money they are giving to their agency, but they usually do not know how much money is actually being spent on advertising.

This lack of transparency has long worried Google. Consider this scenario:

Advertiser knows their ad will be displayed on Google

Advertiser gives agency $1000

Agency spends $300

Agency generates 3 phone calls

While the agency looks bad and might not get the renewal—their job is to outsell the churn.

From the advertiser’s perspective, Google advertising does not work.

The advertiser might not realize it was the agency who messed up, and not the ad campaign. In cases like this, Google might never receive dollars from that advertiser again.

This change in Google’s terms of service will force transparency, offering insights into their ad spends that many advertisers have seen. No longer will they think Google AdWords does not work—they will see that only 30% of the money is being spent on Google and realize the agency is keeping most of their dollars.

From Google’s perspective, this means those “failed” accounts will no longer blame Google—they will blame the agency. And when the advertisers fire the agency, they may be more likely to try AdWords again as opposed to thinking AdWords does not work.

This second chance will increase Google’s revenues, and keep businesses advertising with Google. If someone switches agencies, but keeps advertising, Google still keeps the ad dollars; they just flow through another party. This is a huge win for Google.

Will this change hurt the aggregators?

Yes. In some cases a lot.

Consider a very sophisticated aggregator that could take the above $300 in ad spend and generate 30 phone calls. If the accountant closes one in five leads, they received six new clients. If each client pays them an average of $1000 per year, that accountant spent $1000 and made $6000. The accountant is a happy client and the aggregator made $8400 per year on that single account. That’s good math for everyone.

That same aggregator might now have to spend more of the ad dollars just to be competitive from a sales perspective. They might buy less relevant keywords to spend the ad dollars. In fact, they might spend $500 and generate 30 qualified phone calls and 10 unqualified ones. That $200 of extra ad spend went to Google, but is lost money from an aggregator who works on slim margins (remember: aggregators have to pay a sales force, sales managers, analysts, analyst team leads, API developers, etc to run tens of thousands of accounts), and did not have any meaningful impact on the advertiser’s revenue.

The competition between aggregators is usually the positioning of the products through the sales force and the number of leads generated. Rarely was the competition about margins.

Now it will be.

What remains to be seen is whether this will cause a downward spiral. If margins decrease, then the pay decreases, less talented people will be hired, and eventually this effect can cause a decline in performance. While this is the worst-case scenario, the accountant might see that $700 is being spent on Google but volume of phone calls is not changing. That could easily reflect that Google’s traffic is not converting and the agency is not at fault.

Are aggregators evil? Or is Google forcing unnecessary change?

Other good questions.

When I worked for an aggregator, I much preferred to have the conversation with advertisers stay focused on phone calls and revenue generation. Trying to educate small businesses about the content network, why you should not buy a single keyword, broad matching strategies or what is a good CTR was often a waste of time. Talking about the ins-and-outs of AdWords caused the sales force to sell less and the customer support demands go up trying to explain sometimes arcane search advertising concepts to a small business instead of focusing on what was really needed for everyone’s success: selling and marketing.

Have you ever asked a Yellow Pages rep how their categories are created or how much it they make from your ad? Probably not. Yet Google is now requiring aggregators to have these conversations about how Google itself works.

When I put on my other hat as someone who has run agencies that have full transparency to clients, I prefer the new terms that force transparency. Trying to sell to a customer that believes paid search does not work because they had a bad agency is difficult. When the advertiser blames the advertising method (i.e. paid search) and not the agency for the failure of their accounts, they are more resistant to experimenting and having a productive relationship with the agency.

In both of these scenarios, there is no “best way.”

There is a best for an aggregator—lack of ad spend transparency and focus on conversions.

There is a best for Google—show businesses how much traffic and spend is generated through Google. Try to keep businesses advertising with Google even if they leave their agency.

However, the “best” method will always be one where one where businesses generate qualified leads from their ad spend and continue to grow their profits, regardless of so-called “transparency” or how dollars are ultimately spent. If the advertiser wins, everyone wins.

Some opinions expressed in this article may be those of a guest author and not necessarily Search Engine Land. Staff authors are listed here.

Attend MarTech and hear first-hand how brands like Coca-Cola, Aetna, Dell, EMC and Netflix are harnessing the power of technology to produce exceptional customer experiences that deliver business results. Visit with over 60 companies in expo hall. Don't miss the only US-based MarTech conference this year. Register today!

Sponsored

Darn! Total transparency was one of our competitive advantages at DragonSearch… Now, if everyone else HAS to provide the same transparency, we’ll need to focus on our other advantages.

http://www.rimmkaufman.com George Michie

Brad, this is a fascinating piece. Thanks for providing insight into the world of the aggregators. The cost of serving tiny accounts is problematic. The Trada model is interesting, but ultimately faces the same problem: if the margins are too thin, the quality and quantity of work will stink; if the margins are too thick the advertisers might walk. Self-management makes sense but only if the tools are so good that the small business doesn’t have to do much management, and they aren’t there yet.

I think transparency is the right thing in the long run, even if it forces aggregators into different types of discussions: “Look, for a management fee of $700/month I can manage your AdWords program. You can probably only spend $300/month profitably, but the $1,000 in total spend will still be worth it. You in?”

http://www.MySEMexperts.com MySEMexpert

Brad, great content, thanks.

I agree with you that Google’s intentions are to create customer loyalty to Google. However, clicks, impressions and spend is not nearly the transparancy my clients are seeking.

Even though clients often ask to know more, they’re only doing so in order to establish trust with their agency. Once that trust is established, my experience is that few, if any, really want to get into the “guts” of the PPC program.

In my experience, agencies whose attitude it is to keep the client “in the dark” may avoid the initial difficult process of explaining the ins-and-outs of the client’s campaigns, but they will never gain the trust and long-term relationship that any growing sustainable business needs to acheive.

Thanks for laying this new news out for us.

All the best,
@MySEMexpert

http://www.saasaffiliates.com ledermanu

It is about it that Google steps up like this..

I spend allot of my hours explaining to my customers what it is that I actually do for them and how these changes reflect visibility, clicks & conversions.

I know that my clients appreciate it and it certainly sets myself apart.

YES, I sometimes work myself out of a contract.. but that is ok because they always send someone else.. :-)

http://www.bgtheory.com Brad Geddes

Just to play devil’s advocate…

Here’s something an aggregator can do that most people can’t.

Let’s say a company has 1,000 plumber clients. And that 80% of them are in their top 20 marketers (not uncommon).

That means that the aggregator can track phone calls, driving direction requests, contact forms, etc for all 1000 plumbers.

Now, if they start doing confidence matching from the ad, keyword, etc to conversion activity across all 1000 accounts they are no longer optimizing 1 account that spends $200/month – they are optimizing an account that spends $200,000 with a lot more data points.

However, they don’t have to stop there. They can then start to regionalize the optimization efforts and start to see how ads change conversions by region and then optimize to those data specs.

Now, they probably also have 1000 electrician clients. The business type is very similar to a plumber (service industry, home improvement, etc). So, they they can take some of the ad copy data from the plumbers and apply it to the electricians (especially on a regional basis). And of course, they could the electrician data and associate it to the plumber.

Now continue that example by a large set of industries.

Now, that assumes they aren’t a yellow page company who can actually coordinate data points between the web and offline – that’s an interesting proposition.

http://www.cucumbermarketing.com Helen Stepchuk

Wow, I had no idea that some agencies do not provide minimum information like CTR, impressions and adspend! Wow!

Also, I am shocked that clients would accept reports without this basic information!

http://www.sbmteam.com georgebounacos

Great piece, Brad, and what should be a best practice becomes the rule soon.

Like you, I ran a local aggregation service at one time, and I HATE the model we used. When a client is confused, an agency will always face issues with churn.

I vowed never to do that when I went out on my own. For clients who are data hounds, I share everything, sending them automated reports from 3rd parties, from the engines and platforms and so on. Some even get full search query reports.

Others say, “My ROI goal is $X. We agree to calc attribution this way. Report the return to me every Monday.”

But pricing models (performance, percentage of spend, upcharges, consulting time) are huge transparency levers. Where possible, I try to steer clients to flat or project rates. It’s not as profitable, but I don’t want to be in a position where my client is afraid to authorize more spend because they don’t want to pay more fees or where they don’t want to call to discuss strategies.

That trust brings me acquisition through word-of-mouth brought about by transparency. Being a partner means I don’t have to hire sales reps. And at least once a month, I no longer get an AdWords or PPC virgin. I get someone who the aggregators ripped off. That client when treated TLC and transparency will never leave.

The more troubling aspect is when Google reaches out to them directly for other services. I know Google can see that the account is in an MCC with others. To me that means that Google should never contact them directly. Alas, that doesn’t happen.

DaveAd

Great piece. I think transparency is a great thing in most advertising relationships but I’m wondering about affiliate relationships(the few that are left out there) and how they will be affected by this.

If i’m driving traffic to someone’s site on a commission basis and the adwords account is mine with all my information including CC will I still be obliged to report my spend to the client?